English, Welsh & Scottish Railway: Creating a profitable model
English, Welsh & Scottish Railway (EWS) is an important chapter of Berkshire's "rail history" that began with an investment in Wisconsin Central in 1987 and which included the 1993 acquisition of New Zealand's rail system known as Tranz Rail; a detour to nearby Australia that resulted in ownership of the small railroad on the island of Tasmania and an "open access" service in Victoria; and then finally the 1996 purchase of British Rail's freight business that was subsequently renamed EWS. In all cases Berkshire was the key financial investor alongside the operators from Wisconsin Central to drive the culture change necessary in these operations to ensure their ongoing operating success.
EWS moved approximately 70% of rail freight in Great Britain and operates through the Channel Tunnel. The Company also positioned itself to take advantage of the new open access rules that facilitate rail competition across the European Continent and successfully entered and built a business in France.
What did EWS seek from a private equity partner?
In the case of EWS, Berkshire's participation in the founding shareholder group contributed to the creation of the Company. British Rail's original goal was to sell its freight business into five separate companies that would compete with each other for rail freight market share. However, Berkshire and its operating partners took the view that better outcomes would result from consolidating all rail freight into one entity to best position that entity for competition with motor freight carriers, thereby easing road congestion. Fortunately this view won out, and EWS was born.
Berkshire and its operating partners learned a long time ago that the key to rail growth and profitability is to optimize asset utilization while using more flexible work rules to drive a customer oriented, service driven, results focused and lean organization. This model has been pursued at EWS with good results.
Berkshire's role
Berkshire used its deep knowledge of rail operations and its credibility as a respected institutional investor to help convince U.K. policy makers that a unified rail operator was indeed in the best interests of the country. Subsequent to the launch of EWS, Berkshire has served as an active shareholder helping management address the various operating challenges that have arisen from time to time and assuming chairmanship of the Board.
In order to continue to fulfill EWS' expansion plans, Berkshire and other shareholders sold their interests in EWS in 2007 to Deutsche Bahn, a European rail operator.
Outcome
Berkshire's "rail history" has been one of those investment niches where real expertise can make a difference. Following on the success of Wisconsin Central and Tranz Rail, EWS continues the effort to remake the future fortunes of an industry that had been in long term decline.